Episode Transcript
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Speaker 1 (00:05):
Tonight, a trade truce on shaky ground, the best strategies
to create an income stream from your investment portfolio, and more.
You're listening to Simply Money presented by all Worth Financial.
I'mbob Sponsller along with Brian James. A tear iff pause
that sent the markets rising is now looking increasingly fragile
(00:26):
or on a little bit of shaky ground. All Worth
Chief Investment Officer Andy Stautu is with us now. Andy
manages more than twenty five billion dollars investment in investments
from right here in our Cincinnati office. Andy, what's going
on between the US and China with regard to trade
right now?
Speaker 2 (00:46):
Well, it's definitely an evolving environment, right I mean, we
had this ninety day tearff pause between the US and
China that was struck just a month ago in Geneva.
Now it appears that it's becoming I don't want to
say meaningless, but it is definitely fragile to use your
(01:06):
word from earlier. And the issue is that the reason
that the US agreed for a tariff cost was in
exchange for an assumption of rare earth mineral exports from China.
But what's going on now is that Beijing is essentially
slow walking these license approvals, especially for some inputs, some
(01:27):
key inputs and autos, electronics and defense equipment, and it's
really already starting to ripple through.
Speaker 3 (01:35):
The supply chain.
Speaker 2 (01:36):
I mean, auto manufacturers, they've worn the White House that
unless shipments start moving, they're going to be forced to
idle some plants.
Speaker 4 (01:44):
So andy, a lot of people have exposure to international
stocks international investments as part of a diversified portfolio. Have
we reached a point yet where you think we ought
to start to change some of those assumptions that we've
the long standing assumptions we've had in that kind of
portfolio allocation.
Speaker 2 (02:00):
Well, I mean, we've always been a big believer in diversification.
I mean, if you look at just asset classes a
year in year out, US large caps have really done
quite well over the past ten years, there's no question
about that. But things go in cycles, and we're seeing
that cycle this year. International stocks they're crushing it. So
(02:22):
in a nod to diversification, Developed markets like Europe, Japan, Australia,
they're up about seventeen percent for the year. Brian merging markets,
despite all their troubles, they're up nine percent.
Speaker 3 (02:35):
On the year.
Speaker 2 (02:36):
Now, to be fair, a good portion of those returns
are due to currency effects because the US dollar has
dropped about ninety percent for the year, So removing that
in local currency, they're still doing pretty well. Developed markets
up about nine percent. Em or merging markets they're roughly
five percent higher on the year. So is it time
(02:57):
to rethink how people, uh, you know, think about these
asset classes. I would say no, because you should already
be thinking about diversification. If you have a diversified portfolio,
you're going to love some asset classes and you're not
going to love.
Speaker 3 (03:13):
Some asset classes. But the point of diversification is to
smooth out those.
Speaker 2 (03:18):
Returns so you get a the ability so to sleep
at night financial peace of mind, because if you get
whipsaw by having all of your money in one stock
or one asset class, you're going to panic. But if
you get those smooth positive returns over full market cycles,
things start this even out and you end up being
(03:38):
in a better position to stay infested and you don't panicky,
you don't sell at the wrong time.
Speaker 1 (03:45):
Andy, I want to go back to some of this
supply chain exposure issue for a moment. If we may.
You know, the markets were fairly calm last week, really
no reaction to some of this potential disruption in China
and US trade policy. See, meanwhile, we had battles going
back and forth with the courts and the White House
on you know, we get a court ruling that some
(04:08):
of these tariffs are illegal, we get a stay on
that from a different court. Markets have been pretty calm.
At what point, you know, keeping in mind that I
think we're all kind of used to the fact now
that all of this volatility on social media with President
Trump is oftentimes now seen as just a negotiating tactic
and it's all going to get resolved. At what point
(04:30):
do we need to see some actual resolution here before
volatility starts to rear its ugly head back into investment
markets and inflation.
Speaker 3 (04:41):
Well, I think.
Speaker 2 (04:42):
If you look at Liberation Day on April second, and
you saw the volatility that came from that, and then
the reversal of those policies basically a week later, and
you know, the market started, recovery started. It's recovery that's
kind of the baseline that we should be thinking about things. So,
(05:03):
if you're worried about volatility, if you're worried about what's
going on with the tariffs, and you're wondering when things
might get bad again.
Speaker 1 (05:11):
I'm asking what, I'm asking what you think. I want
you to pull out your crystal ball here and tell
us what's going to happen and when.
Speaker 3 (05:18):
I don't have a crystal ball.
Speaker 2 (05:20):
But I would say the risks are higher the closer
we get to when all of these tariff pauses come
to an expiration.
Speaker 3 (05:28):
So you know, we.
Speaker 2 (05:29):
Had the pause in Europe, we had like a sixty
day pause there, ninety day one WHI China. As we
get closer to that pause coming to an end without
a resolution, that's when you want to see that volatility pickup.
Speaker 3 (05:41):
So we have some time to not really panic too much.
Speaker 2 (05:45):
However, I mean, we saw on Friday where President Trump
said he was going to double the tariff on steel
and aluminum ports from twenty five to fifty percent, cited national.
Speaker 3 (05:56):
Security, protecting American jobs.
Speaker 2 (05:59):
You're being commission You know, they certainly did it like
that just because you know it would hurt them. Canon
and Australia also voice some sharp opposition to it. Now,
what that means is that it created another level of uncertainty.
So when you have things that actually go into effect,
and we saw an immediate negative reaction over the weekend
(06:20):
in soft market futures to this because it's happened Friday
after the close. But when you when these things go
into effect, that's when you're going to see that volatile.
Speaker 4 (06:27):
Hey, Andy, switching here is just a little bit. So
we know that the first Trump administration did have some
impact and kind of change how how politics are done
and how people are willing to get their political goals accomplished.
Do you see the same thing in tariff policy going forward?
Meaning you know, I guess I'm thinking of like just
in time tariffs, Maybe we'll slap a tariff against somebody
(06:50):
for six eight weeks and then it'll just go away.
As opposed to the past where these issues really have
not have not come up at all. You know, when
I go back and search through old examples of of
of history of how we operate in tariffs, the most
impactful ones have been the first Trump administration. Then you
go back to all the way to Holly Smoot. So
is there do you do you anticipate more activity going
forward in this space?
Speaker 2 (07:12):
What I think he'll happen, or what I think will happen,
is that you're going to see these tariffs continue to
be part of the Trump administration as he looks to
do a few things with him. One obviously, is to
balance the trade deficit, or at least get closer to balance.
We're never going to be a net import that seems
highly unlikely. What I think you'll see, though, is you
(07:36):
might see some improvement. You're going to see some agreements
with other countries to purchase certain things, like the UK
with Boeing, you know, as an example. And then also
the president can you know, raise some money for this
to help, you know, offset deficits in other areas. So essentially,
you know, the tariff money that can be collected could
(07:59):
be used to I wouldn't say trend to death sick
because I don't really see our deficits getting smaller anytime soon,
but maybe slow the pace of increase from that perspective.
And then also just as a means of I'll call
it economic warfare if you will. I mean, if you
think about how we've done economic sanctions in the past
(08:19):
on countries like you know, Russia for instance, what's more
effective not just necessarily for Russia, but just in general
is terrorists because that has an immediate impact on those
exporting countries. So when you put that all together, you know,
I definitely think it's going to be a continual part
of the Trump administration.
Speaker 3 (08:37):
Beyond that, probably not so much.
Speaker 2 (08:41):
But what we saw with the Biden administration is that
he left a lot of those tariffs in place that
Trump already Trump did, so I think you could see
a lasting impact because people will leave them in to
in effect. However, I don't know if it's really going
to be an ongoing tool that other administrations will use
(09:01):
or really just depend on the political party in charge
in the candidate's actual stance on things.
Speaker 1 (09:08):
All right, Andy, last week's economic data provided a broader
view of how the economy is adapting to things like inflation,
evolving labor dynamics, ongoing trade pressures, jobless claims. You know,
we've got some reports coming out later this week on
GDP give us an update on just what the broad
(09:29):
economy looks like right now when you look at all
the factors going on behind the scenes away from just
the tariff talk.
Speaker 2 (09:38):
Well, there's certainly a lot going on. Starting GDP just
mentioned that our gross domestic product. That's basically a measure.
Speaker 3 (09:45):
Of our.
Speaker 2 (09:48):
Net income for a country, if you will. It's technically
the output that a country produces. What we saw in
the first quarter compared to the fourth quarter is that
the US economy shrink zero point two percent, and that
was due to a forty three percent jump in imports
because businesses were attempting to front run tariffs. And it
(10:09):
was the first quarterly contraction since the first quarter of
twenty twenty two, so it's been about three years since
we've had a quarterly contraction. Now, if you look at
the underlining details, though, there's definitely a silver lining because
this was really pretty much all due to trade.
Speaker 3 (10:26):
So let's focus on just domestic purchasers.
Speaker 2 (10:28):
So this is consumer spending and business spending excluding inventories
and what those What that measure did is it increased
two and a half percent, so that headline GDP essentially
masked robust domestic demand.
Speaker 3 (10:45):
You mentioned the labor market.
Speaker 2 (10:46):
Yeah, it really is a picture of stability right now.
There are some more cracks forming, especially on the jobless
claim front. We've seen a big spike in continuing claims.
That's people who are continuing to cull left unemployment insurance.
It jumped to its highest level since late twenty twenty
one at one point nine million. But broadly speaking, and
(11:08):
we're going to get update this Friday, Bob, the unemployment
rates at four point two percent and employers added one
hundred and seventy seven thousand jobs in April.
Speaker 3 (11:16):
We'll see what the main number is.
Speaker 2 (11:17):
Economists are a little less optimistic, uh, with maybe employers
adding around one hundred and thirty thousand jobs, but there's
a lot of uncertainty around that. And lastly, on the
inflation front, we did get the Federal Reserves Preferred inflation
measure last week core PCE, and it increased zero point
two percent or i'm sorry, point one percent, and on
(11:41):
a year of a year basis, that's two and a
half percent, so and that's a slight decrease from two
point seven percent. Now, the thing is that the Federal
reserve targets of two percent core PCE inflation rates, so
we're still higher than where the Fed wants it to be.
So for everybody wanting rate cuts, the Fed is not
going to be in any hurry to cut rates unless
(12:04):
you see the economy really slow down, because if they
cut rates that could easily force inflation higher and making
the FEDS drop even worse. So as long as the
job market remained stable, it seems unlikely the Fed's going
to do too much on brake cuts.
Speaker 1 (12:20):
All right, sounds good, Andy, Good stuff is always from
all Worst Chief investment Officer Andy Stout. Here's the all
Worth advice. Don't just let headlines drive your portfolio decisions.
Focus on fundamentals and where the real economic momentum is.
Coming up next, details on what could be a major
tax break for more Americans than ever before, maybe even you.
(12:43):
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC, the talk station. You're listening to
Simply Money presented by all Worth financialcial Lumpop spon Seller
along with Brian James. Hey, if you can't listen to
(13:04):
Simply Money every night, subscribe and get our daily podcasts.
And if you think your friends or family could use
some financial advice, tell them about us as well. Just
search Simply Money on the iHeart app or wherever you
find your podcasts. Straight ahead at six forty three, we're
going to play a little financial planning fact or fiction
and you can score along with us and see how
(13:26):
you do. If you're among the many Americans leveraging health
savings accounts for their triple tax advantages, we want to
remind you today that twenty twenty five brings some noteworthy
updates that could enhance your overall financial strategy.
Speaker 4 (13:42):
Yeah, so there's some big things coming here out of
this this big, beautiful act. You know, regardless of what
your opinion on is that there's a lot of detail
in here, and it's easy to get meyer down in
the headline generating stuff and the political things and all
that kind of stuff. But there are every now and
then we get an a coming out of Congress that
(14:02):
provides some pretty significant tax benefits. And that's where we
are right now. So if you're one of the people
out there using health savings accounts, remember this is an
account where you can save your own dollars, can be
triple tax free, deductible on the way in. Any investment
growth you see on the inside of it is also
not taxable, and when you pull the money out, provided
(14:23):
that it's for healthcare expenses, also again tax free. Once
you reach a sixty five, it behaves like a four
oh one K, meaning that you can take money out
for any reason whatsoever, and it's simply taxable as income
unless it's used for healthcare expenses. That's what a health
savings account is right now. So as right what's going
on right now is the limits are going to be
(14:44):
raised to forty three hundred for an individual only if
you have a family, it's eighty five fifty up from
eighty three hundred last year. And catch up contributions for
ages fifty five and over remains a thousand bucks. That
hasn't changed.
Speaker 1 (14:57):
So what are we trying? Those are that's correct law today,
irrespective of any new tax bill that gets passed by Congress.
That's the law the land today. Those contribution limits have
been raised for twenty twenty five. I want to make
sure we make that clear current actual law versus what
could possibly happen based on some legislation going through Congress
(15:20):
right now.
Speaker 4 (15:21):
So let's talk about the changes coming out. So those
legislation's only made it through the House, got to go
through the Senate too, and again there's a lot of
stuff attached to this, so we'll see what comes out
the other end. But Medicare Part A recipients would be
allowed to contribute to health savings accounts, Bob, per your point,
this is not possible as we're sitting here right now.
If you're on Medicare, that's not considered a high deductible
(15:41):
insurance plan. Therefore you cannot contribute to an HSA, and
you also have to have stopped contributing to it for
the prior six months of being on Medicare, because Medicare
looks back six months.
Speaker 1 (15:50):
That's current law.
Speaker 4 (15:52):
If this goes through, then h then Medicare Part A
recipients will be able to contribute to hssas as well.
In addition, integration with some of the Affordable Care Act plans,
specifically Bronze and Catastrophic, more individuals, including early retirees and
younger workers, can benefit from hsas as well. Also going
to include new expenses. Gym memberships possibly could be paid
(16:13):
for up to five hundred bucks for an individual, thousand
dollars for families annually. And this is a big one too,
as both spouses ages fifty five and older. That's the
catch up age you have to have reached before you
can do that extra thousand bucks. But you will both
be able to make those contributions to a single HSA
and kind of simplify things for yourself.
Speaker 1 (16:34):
Yeah, this all sounds like pretty good stuff. And the
good thing is it would allow more and more people
to take advantage of one of the most valuable planning
strategies out there, which is often overlooked, and that's this
health savings account. And if you listen to this show
at all, you hear us talk about this all the time.
But again, the stuff we just went through, that's the
(16:54):
House version of the current bill that's making its way
through Congress. The Senate has not passed the bill yet,
and I can only guess how many iterations we're going
to see in this bill between now and the time
that it might actually get signed. Here a little bit,
you know, later on this summer, Brian, let's stick with
the overall irrespectable any tax law changes that come down
(17:15):
the pike later on this year, walk us through again
why everyone should be considering using these if you have
the opportunity to do so.
Speaker 4 (17:24):
Yeah, so I think these are again, it's triple tax free,
right if it's handled the right way. We talked about
a deductible on the way in no taxes during you're
not getting a ten ninety nine every year because the
things spit out a dividend and you pull it out
tax free. If it's used for healthcare. Worst case scenario,
it's taxable. Is income just like your traditional four oh
one ks and iras. Once you reach age sixty five,
(17:45):
that's the laws. It is now two huge, huge, huge
things that you need to take into account. Don't just
open up an HSA because your HR department told you
it's a good idea. And here's this no name bank
you've never heard of that is most likely simply going
to behave like a bank account. There will be no
investment growth whatsoever. You may have to keep a portion
in that particular account. Sometimes they require that a few
(18:06):
thousand bucks or something in that basic account, but you
can move the dollars once they're there anywhere, meaning you
can stick it. You can find another outlet, such as
Fidelity or some of the other major financial institutions. They
offer mutual funds just like any other investment program. That
is a very very important step. There's no tax free
growth if you're gonna let it behave like a bank account,
so don't miss that. But you might have take some
(18:26):
proactive control over it. Another huge, huge Huger point, Bob,
is to remember that you don't have to pay for
your expenses that you've incurred right now. This is something
that people, I don't think quite understand. You can fund
that if provided you've got the cash flow to support it,
pay your medical expenses out of cash, just pay out
a pocket, keep those receipts, and then you can let
(18:49):
that money grow for years and years. You can go
for decades, and you can proactively I'm sorry, retroactively payoff
healthcare expenses in the future. Meaning I've got this receipt
from fifteen years ago, I'm going to take a giganticbution
right now and I'm just going to take that cash
and do anything.
Speaker 1 (19:04):
I don't owe that money anymore.
Speaker 4 (19:05):
It's a little bit tough for people to get their
heads around. I don't owe the money anymore. I paid
off the medical facility years ago. But now I get
to take my deduction here fifteen years in the future
because I save that receipt. The benefit I get there
is that tax free growth that I've had over that
long time period. So get your tax benefit now, savior
receipts pulled out to tax free later.
Speaker 1 (19:24):
Yeah, it really is a tremendous tax planning opportunity that
we find so few people are even considering, to say
nothing of taking advantage of. Here's the all Worth advice.
Maximizing HSA contributions can lead to significant tax advantages and
greater financial flexibility. All right, Coming up next, Chief Investment
(19:45):
Officer Andy Stout is back with investment solutions for those
focused on generating income streams from their investment portfolio. You're
listening to Simply Money, presented by all Worth Financial on
fifty five KRC the Talk station. You're listening to Simple
(20:06):
Money by all Worth Financial. I'm Bob John Teller along
with Brian Jean, and we're back with all Worth Chief
Investment Officer Andy Stout. Andy. Tonight, we're going to talk
about an important topic for most investors out there. A
lot of people are thinking about, Hey, I got this
pile of money, I have these investment accounts. How do
I craft an overall strategy focused on income generation? What
(20:31):
what do you tell investors, savers, retirees about that topic?
Speaker 2 (20:37):
Well, I would start by saying, tell me a lot more,
because there are so many ways that you can get
income and it really depends on you, know what your
objectives are, what your besides.
Speaker 1 (20:49):
Income, Well, let me let me let me help you
out a little bit. I mean, obviously, we've got we've
got clients that are, you know, almost one hundred percent
bond They just wanted a safe income generator portfolio from
a mixture of bonds and cash. We have other folks,
as you well know, that are more balanced investors, you know,
more of that fifty to fifty sixty forty kind of investors.
(21:10):
And then we've got, you know, clients that want to
heavily skew toward growth in their portfolio seventy eighty ninety
percent in stocks, but still want some income you know,
coming from their portfolio for cash flow. With that as
a backdrop, talk about some things that we do in
the way of portfolio construction for all three of those
(21:31):
kind of folks.
Speaker 2 (21:33):
But if you're looking for the individual bond, so that
first type of persona, if you will that you described, Yeah,
I would probably start to think about bond ladders, which
are a way to spread out your individual bond.
Speaker 3 (21:46):
So think of like an example of.
Speaker 2 (21:49):
Being a one to five year bond a ladder where
you take your investment, say it's a million dollars. Just
to keep it simple, basically, invest two hundred thousand dollars
and bonds that mature in one year from whenever you
do it, two year, three year, four.
Speaker 3 (22:04):
Year, and five years. And then as you.
Speaker 2 (22:07):
Get closer to those bonds mature and you take those
those one year bonds that are now matured and buy
a new five year group of bonds. And so that
allows you to stagger your investments over a period of
time and helping to smooth out the overall interst rate
risk that's out there. And it's not just quote unquote bonds.
(22:28):
I mean, there's different types of bonds that people should consider. Ok,
different high tax bracket. You might want to be looking
at municipal bonds because that'll give you a federal tax
free income and possibly state tax free income depending on
the bond that you actually get.
Speaker 3 (22:42):
Now, if you're not in a.
Speaker 2 (22:43):
High tax bracket, or maybe you already have a lot
of exposure to me, you needs to just want to diversify.
You can also look at corporates and treasury bonds. So
there's a lot of options for you from that perspective.
So you know, when you look at those bonds, that's
one thing that I think makes a lot of sense
if you have individual bonds. Now, another type of you know,
(23:08):
PERSONA would be the person who's investing in individual stocks.
So if you're investing in individual stocks, you know, you
want to make sure you stay diversified from that perspective,
and you can easily focus on individual stocks to have
a high, you know, dividend paying mentality if you will,
and you used to look at like what their yield
(23:29):
has been or what they're expected yield is going to be.
And the key is really just to make sure you
stay diversified. You want to not have it all in
one sector. So it's really critical that you pay attention
and not just buy high dividend yielding stocks. And you
also probably want to actually look at the names because
some of those names could be paying a high dividend
for all the wrong reasons. So you might see, oh,
(23:51):
this has a ten percent dividend, this is great, Well,
maybe it only has a ten percent dividends because the
stock has been crashing and maybe there's no prospects for
any sort of real improvement and that dividend.
Speaker 3 (24:02):
Could be at risk.
Speaker 2 (24:03):
So you really need to pay attention to stable cash
flows and you know, we definitely want to focus on
stable companies. And the other person ona that you know
we talked about was a diversified investor. Now you can
certainly combine individual stocks and individual bonds. You can also
go to fundrout you can use like exchange rate of
funds or mutual funds to achieve pretty much the same thing.
(24:24):
So you can get income in that four five percent
range depending on how much risk you're willing to take.
By having a diversified portfolio of stocks and bonds, so
you can have your typical you know, sixty forty mix
as an example, and get that roughly you know, four
to five percent yield.
Speaker 3 (24:41):
And the key here is to make sure you're diversified.
Speaker 2 (24:45):
Don't just put it all into one ETF or one
mutual fund. You want to spread it over different types
of dividend payers and different types of bond investments that
pay out income. So there's lots of opportunities there.
Speaker 4 (25:00):
So Andy, one thing i feel like I've seen talking
to my clients, you know, over the past fifteen years,
it seems like, obviously we've had really really low interest
rates up until about three years ago. It seemed like
during that period when interest rates are so low, people
were much more attracted to the idea of, you know what,
I'll just invest in the diversified portfolio of you know, stocks, funds, bonds, whatever,
(25:20):
and just take distributions out of it, especially when it's
like an IRA where there's not much control over the
taxation anyhow, you're going to take your distributions to pay
your bills, and you're going to pay your taxes, and
you're going to like it, by God. But in any case,
have you seen a shift over the last three years
more interest in individual bonds? It feels like we've maybe
gone back to where it was in late nineties early
two thousands. Are you seeing the same thing?
Speaker 2 (25:41):
Yeah, I'm seeing interest there for sure, for all the
reasons you just mentioned. But there's a few other things
that have been becoming more and more attractive for investors.
One thing that I'm saying is covered calls. So if
you have a big position in proper and Gamble as
an example, you're seeing some investors write call options on
(26:03):
them to generate their own income, and that's just another way.
Now you run the risk of that stop getting called away.
But there's rules you.
Speaker 3 (26:11):
Can put a place to minimize.
Speaker 2 (26:13):
Is that Another thing that I'm seeing out there is
some structured notes to generate yield. So it's not just
the individual bonds that have seen increased attractiveness. And I
don't call these exotic investments. I mean covered calls, structure
noteses are relatively mundane in today's day and the world.
I mean twenty years ago maybe you might have thought that,
(26:35):
but now not so much. But yeah, you were seeing
a shift in general to a broader offering overall.
Speaker 1 (26:43):
Good stuff there, Andy, and I think the point we
want to drive home to all investors out there, there's
a lot of options out there, a lot of things
to consider and a lot of variables to factor in
when you construct a well designed income plan from your portfolio.
Thanks always to our Chief investment Officer, Andy Stout for
joining us today. You're listening to Simply Money presented by
(27:06):
all Worth Financial on fifty five KRC the talk station.
You're listening to Simply Money presented by all Worth Financial
on Bob Sponsorer along with Brian James. Do you have
a financial question for us to answer? There's a red
(27:28):
button you can click while you're listening to our show
right there on the iHeart app. Simply record your question
and it'll come straight to us. All right. Time to
play financial planning factor fiction, Brian, I'm gonna let you
start off factor fiction. Direct investing can offer better tax
efficiency than traditional ETFs. Fact. This is a fact, Bob.
Speaker 4 (27:52):
So direct indexing basically means that instead of owning a
mutual fund that replicates a stock index or a bonda
or whatever.
Speaker 3 (28:01):
You know.
Speaker 4 (28:01):
Most typically that's the S and P five hundred, which
is nothing more than the five hundred largest American companies,
you can own a fund that does that kind of thing. However,
nowadays you can also own all five hundred stocks individually.
That might seem overwhelming, and maybe I don't want a
thirty page statement and all that kind of thing. But
if I own all five hundred stocks, that means any
of those five hundred stocks is doing anything good, bad,
(28:22):
and different.
Speaker 1 (28:22):
Some are up, summer down.
Speaker 4 (28:23):
But if I've got the ability, I can do some
tax loss harvesting in a taxable account. This doesn't help
in an IRA roth IRA. It has to be a
you know, an account that's otherwise exposed to taxes on
an annual basis. But if I own those five hundred
individual stocks. I can sell some at a loss during
the year. Stuff is going to go up and down.
We know how that works. If I incur that loss,
I can stack that up and deduct up to three
(28:46):
thousand dollars off of my short term you know, against
any short term gains and off of my income. I
can also use those losses to offset any long term
capital gains that I may have incurred. And that it
could be because I sold some stock somewhere else and
I ate a capital gain. Maybe I sold a business
and there's a capital gain you know from that. But
direct indexing is a great way for the right investors
(29:08):
to have the ability to do some tax loss harvesting.
Speaker 1 (29:10):
So that one which is in fact, it just puts
more arrows in your quiver, right, Brian, A lot more flexibility.
Speaker 4 (29:16):
Another weapon. All right, Bob, you're on the hot seat
here it comes fact or fiction, Bob. Social Security benefits are.
Speaker 1 (29:22):
Always tax three. That is fiction. And I think most
people understand this. But you know, your income doesn't have
to get much over forty thousand dollars for a mery
filey joint couple before eighty five percent of your Social
Security benefit is taxed. So now there are situations if
you're a lower income person, or if we can make
(29:44):
you into a lower income person by using accumulated savings
or taking advantage of some of the low capital gains
tax rates. There are ways we can bring that taxable
income number way down, but in most cases most people
need to plan for paying taxes on their Social Security benefit. Yeah,
(30:06):
you're right.
Speaker 4 (30:06):
The being low income isn't necessarily a bad thing. Gives
you some control over your taxes, all right.
Speaker 1 (30:10):
My term, Bob hit me structured notes Brian can be
designed with buffers against market losses while still offering equity
linked returns. Factor fiction. This is facts.
Speaker 4 (30:23):
That's what a structured note does. That's the whole point.
Structured note is basically something that is a calculation based
off of what the underlying index, again most commonly the
S and P five hundred against what the underlying index
has done, meaning that we can put a floor under
it and also a ceiling. Right, So there's pros and
cons anything we do. But the purpose of a structured
note for somebody who says, yeah, I believe in the
stock market, I believe it's going to be the best
(30:45):
source of growth going forward in the best you know
for that chunk of my portfolio. But on the other hand,
I also don't like the headlines, and I really don't
like the whiplash you can get, you know, when when
somebody says something, you know, the wrong words are uttered
into a microphone from all of our political or something
like that. So I would really rather not have to
go through that. So a structured note will put a
(31:05):
floor in so that you can't really lose beyond a
certain amount. But that also means you're sacrificing some of
the upside. So you'll decide that if you buy a
structured note, that's one of the decisions you make is
how much downside do you want to be protected from?
And that in turn requires you to sacrifice some of
the upside. So, like another arrow in the quiver. As
we already discussed before, these aren't the end all BLL.
(31:27):
No investment is the end all bell. But structured notes
can be a great way to offset some of the
risk of a portfolio. All right, come in your way again, Bob,
fact or fiction. You don't need life insurance once you're retired,
What say.
Speaker 1 (31:38):
You, Well, this is one of those situations where I'm
gonna say it depends. I think the.
Speaker 4 (31:45):
Opinion that's a that's a chicken financial planner answer.
Speaker 1 (31:49):
It might be it might be chicken, but I'm doing
my job here, Brian. And the key point we want
to make is it depends on your financial situation. It
doesn't matter whether you're working or retired. What you want
to do is you want to look at your overall
plan and obviously look at it through the lens of
if I die today, do my heirs have enough money
(32:11):
to accomplish all the goals that we've set out, you know,
with your spouse to accomplish. We ideally we like to
have people in a situation that by the time they
are ready to retire, they're in a position to self
insure they don't quote unquote need life insurance to take
care of things. Sometimes we find that people are going
to retire and they still need a little bit of
(32:33):
life insurance maybe for five, ten, fifteen years. Some people
might want to keep their life insurance for an estate
planning tool, or to leave a legacy of dollars to
their heirs. So it's a it's an it's a it
depends answer based on every single family's individual financial planning needs.
Speaker 4 (32:54):
Yeah, it depends. In such a common answer, I was
being mean to Bob just because I can. But that's
because there is no end all, be all black and white.
Everybody should do this answer to any of these topics.
Everything is affected by other outside influences that may only
exist in your situation.
Speaker 1 (33:09):
It depends, all right. Let's go back to a very
an easier question to answer definitively Brian factor fiction. You
can carry forward unused capital losses indefinitely. On the other hand,
there are some that are black and white. This one
is fact. So if you have a loss.
Speaker 4 (33:25):
Meaning you know, perhaps you bought a stock sometime during
the year and it went the wrong way on you
and you sold it. Therefore you have incurred a loss, Yes,
you can carry forward those capital losses indefinitely. What that
means is that you are able to deduct up to
three thousand dollars off of your income of short term losses.
That short term meaning you bought it within a year,
(33:45):
or bought it and sold it within a year and
took a loss on it. That's short term, and you
can offset an unlimited amount of gains with your losses.
So if you have a million dollar gain and you
have a million dollar loss. Guess what, You're not paying
any taxes. The carry forward part of this means if
you had more losses than gains during the year after
you've taken the three thousand dollars deduction in addition to
(34:07):
the long term offset, then you can carry forward those
into the future. This is why you're asked when you
do your taxes, do you have any loss carry forwards?
And most go Most people go, I don't know to
know what that is, So I'm gonna guess I don't.
There is a form that you that you are filled out,
that you filled out as part of your ten forty
that will track that for you, So make sure that
you're on top of that so you don't lose that benefit.
Speaker 1 (34:27):
Coming up next, I'm gonna give you my two cents
on proactive tax planning. You're listening to Simply Money presented
by all Worth Financial on fifty five KRC the talk station.
You're listening to Simply Money presented by all Worth Financial
Sponsorller along with Bryant Gaming. All Right, Brian, I feel
(34:50):
so strongly about this topic. We're gonna spend a few
minutes on it. I'm anxious to hear your perspective as well.
And what we're talking about tonight is proactive tax planning,
actually taking the time in the effort sitting down with
a fiduciary advisor to actually dovetail your investment strategy with
(35:10):
your tax planning strategy. So few people, Brian, we find
are doing this, and it's one of the biggest value
ads I think that we add for our clients, and
it's something everyone should be taking advantage of.
Speaker 4 (35:23):
Yeah, I think that's a great point, and I think
there's an awful I'm glad to hear you're going to
be talking about this because there's an awful lot of
people who focus only on what's my ten to forty
gonna look like this year? How do I reduce my
taxes this year? That's not the only thing to focus
on is about.
Speaker 1 (35:36):
Now, And I'm going to break this into two categories.
One is for an after tax account. You know, so
now we're not we're talking about your brokerage account, not
your IRA or your WROTH IRA, your taxable account. You
really do need to take a look at if you're
not doing so already, these tax loss harvesting opportunities that
can and should go on in the background through a
(35:56):
well managed investment portfolio, and that allows you to harvest
these short term losses to be used in the future
to offset future gains. It's a wonderful planning opportunity and
one that we're not seeing enough people take advantage of
just in the overall management of their portfolio. And then
the second thing that I want to talk about is
(36:18):
just overall strategy. This is where you get into Wroth
contribution or Wroth conversion strategies, social security claiming strategies, putting
everything together in an overall income producing strategy with an
eye on tax management to keep your marginal tax rate
(36:38):
in the lowest possible bracket. It can be Brian, it
can pay huge dividends down the road. And this is
where you got to take advantage again, usually with an
advisor of some of the good software and planning tools
that are out there to actually walk people through how
to make this work. And then we can run those
projections on. Hey, if we do strategy A, B or
(37:02):
C or a combination of all three, here's how it
impacts to your point, Brian, your tax situation not only
this year, but five, ten, fifteen, twenty years down the road. Yeah.
Speaker 4 (37:13):
I took a call last week, Bob that right on
this topic. One of the radio listeners called in wanting
to know how he can reduce taxes on his required
minimum distribution. So this gentleman's in his mid seventies, he's
required to take money out of his IRA, and I
have a choice about it, and he's wanting to reduce taxes. Unfortunately,
there's not a hike of a lot you can do
at that point unless you're own a business. You've got
(37:34):
some you know, different entities out there generating losses or whatever.
It's not like the old days where you can kind
of just you know, look for hidden deductions and so forth.
The right answer to this would have been, hey, ten
years ago, let's start reducing your IRA by converting to
a ROTH. That way, in the future you will have
fewer rmds. That's tax planning.
Speaker 1 (37:53):
Yeah, excellent point, Brian, And again we want to get
out in front of some of these tax planning opportunities
and what we find most often with clients, Brian, you know,
you feel free to weigh in here, but there's usually
this low income period of time, the intervening years between
when someone retires and when they have to start taking
(38:15):
those required minimum distributions, that's where a lot of this
magic can happen. Where you can put their entire plan,
you know. I like to use the automotive analogy. Put
the entire plan up on the rack and look for
that ten, twelve to fifteen year window where we can
keep people in a very low tax bracket and accomplish
some big things, you know, down the road.
Speaker 4 (38:36):
Yeah. Absolutely, that's a great donut hole to to be
able to take advantage of some tax obligations.
Speaker 1 (38:41):
Thank you for listening. You've been listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station
Tonight, a trade truce on shaky ground, the best strategies
to create an income stream from your investment portfolio, and more.
You're listening to Simply Money presented by all Worth Financial.
I'mbob Sponsller along with Brian James. A tear iff pause
that sent the markets rising is now looking increasingly fragile
(00:26):
or on a little bit of shaky ground. All Worth
Chief Investment Officer Andy Stautu is with us now. Andy
manages more than twenty five billion dollars investment in investments
from right here in our Cincinnati office. Andy, what's going
on between the US and China with regard to trade
right now?
Speaker 2 (00:46):
Well, it's definitely an evolving environment, right I mean, we
had this ninety day tearff pause between the US and
China that was struck just a month ago in Geneva.
Now it appears that it's becoming I don't want to
say meaningless, but it is definitely fragile to use your
(01:06):
word from earlier. And the issue is that the reason
that the US agreed for a tariff cost was in
exchange for an assumption of rare earth mineral exports from China.
But what's going on now is that Beijing is essentially
slow walking these license approvals, especially for some inputs, some
(01:27):
key inputs and autos, electronics and defense equipment, and it's
really already starting to ripple through.
Speaker 3 (01:35):
The supply chain.
Speaker 2 (01:36):
I mean, auto manufacturers, they've worn the White House that
unless shipments start moving, they're going to be forced to
idle some plants.
Speaker 4 (01:44):
So andy, a lot of people have exposure to international
stocks international investments as part of a diversified portfolio. Have
we reached a point yet where you think we ought
to start to change some of those assumptions that we've
the long standing assumptions we've had in that kind of
portfolio allocation.
Speaker 2 (02:00):
Well, I mean, we've always been a big believer in diversification.
I mean, if you look at just asset classes a
year in year out, US large caps have really done
quite well over the past ten years, there's no question
about that. But things go in cycles, and we're seeing
that cycle this year. International stocks they're crushing it. So
(02:22):
in a nod to diversification, Developed markets like Europe, Japan, Australia,
they're up about seventeen percent for the year. Brian merging markets,
despite all their troubles, they're up nine percent.
Speaker 3 (02:35):
On the year.
Speaker 2 (02:36):
Now, to be fair, a good portion of those returns
are due to currency effects because the US dollar has
dropped about ninety percent for the year, So removing that
in local currency, they're still doing pretty well. Developed markets
up about nine percent. Em or merging markets they're roughly
five percent higher on the year. So is it time
(02:57):
to rethink how people, uh, you know, think about these
asset classes. I would say no, because you should already
be thinking about diversification. If you have a diversified portfolio,
you're going to love some asset classes and you're not
going to love.
Speaker 3 (03:13):
Some asset classes. But the point of diversification is to
smooth out those.
Speaker 2 (03:18):
Returns so you get a the ability so to sleep
at night financial peace of mind, because if you get
whipsaw by having all of your money in one stock
or one asset class, you're going to panic. But if
you get those smooth positive returns over full market cycles,
things start this even out and you end up being
(03:38):
in a better position to stay infested and you don't panicky,
you don't sell at the wrong time.
Speaker 1 (03:45):
Andy, I want to go back to some of this
supply chain exposure issue for a moment. If we may.
You know, the markets were fairly calm last week, really
no reaction to some of this potential disruption in China
and US trade policy. See, meanwhile, we had battles going
back and forth with the courts and the White House
on you know, we get a court ruling that some
(04:08):
of these tariffs are illegal, we get a stay on
that from a different court. Markets have been pretty calm.
At what point, you know, keeping in mind that I
think we're all kind of used to the fact now
that all of this volatility on social media with President
Trump is oftentimes now seen as just a negotiating tactic
and it's all going to get resolved. At what point
(04:30):
do we need to see some actual resolution here before
volatility starts to rear its ugly head back into investment
markets and inflation.
Speaker 3 (04:41):
Well, I think.
Speaker 2 (04:42):
If you look at Liberation Day on April second, and
you saw the volatility that came from that, and then
the reversal of those policies basically a week later, and
you know, the market started, recovery started. It's recovery that's
kind of the baseline that we should be thinking about things. So,
(05:03):
if you're worried about volatility, if you're worried about what's
going on with the tariffs, and you're wondering when things
might get bad again.
Speaker 1 (05:11):
I'm asking what, I'm asking what you think. I want
you to pull out your crystal ball here and tell
us what's going to happen and when.
Speaker 3 (05:18):
I don't have a crystal ball.
Speaker 2 (05:20):
But I would say the risks are higher the closer
we get to when all of these tariff pauses come
to an expiration.
Speaker 3 (05:28):
So you know, we.
Speaker 2 (05:29):
Had the pause in Europe, we had like a sixty
day pause there, ninety day one WHI China. As we
get closer to that pause coming to an end without
a resolution, that's when you want to see that volatility pickup.
Speaker 3 (05:41):
So we have some time to not really panic too much.
Speaker 2 (05:45):
However, I mean, we saw on Friday where President Trump
said he was going to double the tariff on steel
and aluminum ports from twenty five to fifty percent, cited national.
Speaker 3 (05:56):
Security, protecting American jobs.
Speaker 2 (05:59):
You're being commission You know, they certainly did it like
that just because you know it would hurt them. Canon
and Australia also voice some sharp opposition to it. Now,
what that means is that it created another level of uncertainty.
So when you have things that actually go into effect,
and we saw an immediate negative reaction over the weekend
(06:20):
in soft market futures to this because it's happened Friday
after the close. But when you when these things go
into effect, that's when you're going to see that volatile.
Speaker 4 (06:27):
Hey, Andy, switching here is just a little bit. So
we know that the first Trump administration did have some
impact and kind of change how how politics are done
and how people are willing to get their political goals accomplished.
Do you see the same thing in tariff policy going forward?
Meaning you know, I guess I'm thinking of like just
in time tariffs, Maybe we'll slap a tariff against somebody
(06:50):
for six eight weeks and then it'll just go away.
As opposed to the past where these issues really have
not have not come up at all. You know, when
I go back and search through old examples of of
of history of how we operate in tariffs, the most
impactful ones have been the first Trump administration. Then you
go back to all the way to Holly Smoot. So
is there do you do you anticipate more activity going
forward in this space?
Speaker 2 (07:12):
What I think he'll happen, or what I think will happen,
is that you're going to see these tariffs continue to
be part of the Trump administration as he looks to
do a few things with him. One obviously, is to
balance the trade deficit, or at least get closer to balance.
We're never going to be a net import that seems
highly unlikely. What I think you'll see, though, is you
(07:36):
might see some improvement. You're going to see some agreements
with other countries to purchase certain things, like the UK
with Boeing, you know, as an example. And then also
the president can you know, raise some money for this
to help, you know, offset deficits in other areas. So essentially,
you know, the tariff money that can be collected could
(07:59):
be used to I wouldn't say trend to death sick
because I don't really see our deficits getting smaller anytime soon,
but maybe slow the pace of increase from that perspective.
And then also just as a means of I'll call
it economic warfare if you will. I mean, if you
think about how we've done economic sanctions in the past
(08:19):
on countries like you know, Russia for instance, what's more
effective not just necessarily for Russia, but just in general
is terrorists because that has an immediate impact on those
exporting countries. So when you put that all together, you know,
I definitely think it's going to be a continual part
of the Trump administration.
Speaker 3 (08:37):
Beyond that, probably not so much.
Speaker 2 (08:41):
But what we saw with the Biden administration is that
he left a lot of those tariffs in place that
Trump already Trump did, so I think you could see
a lasting impact because people will leave them in to
in effect. However, I don't know if it's really going
to be an ongoing tool that other administrations will use
(09:01):
or really just depend on the political party in charge
in the candidate's actual stance on things.
Speaker 1 (09:08):
All right, Andy, last week's economic data provided a broader
view of how the economy is adapting to things like inflation,
evolving labor dynamics, ongoing trade pressures, jobless claims. You know,
we've got some reports coming out later this week on
GDP give us an update on just what the broad
(09:29):
economy looks like right now when you look at all
the factors going on behind the scenes away from just
the tariff talk.
Speaker 2 (09:38):
Well, there's certainly a lot going on. Starting GDP just
mentioned that our gross domestic product. That's basically a measure.
Speaker 3 (09:45):
Of our.
Speaker 2 (09:48):
Net income for a country, if you will. It's technically
the output that a country produces. What we saw in
the first quarter compared to the fourth quarter is that
the US economy shrink zero point two percent, and that
was due to a forty three percent jump in imports
because businesses were attempting to front run tariffs. And it
(10:09):
was the first quarterly contraction since the first quarter of
twenty twenty two, so it's been about three years since
we've had a quarterly contraction. Now, if you look at
the underlining details, though, there's definitely a silver lining because
this was really pretty much all due to trade.
Speaker 3 (10:26):
So let's focus on just domestic purchasers.
Speaker 2 (10:28):
So this is consumer spending and business spending excluding inventories
and what those What that measure did is it increased
two and a half percent, so that headline GDP essentially
masked robust domestic demand.
Speaker 3 (10:45):
You mentioned the labor market.
Speaker 2 (10:46):
Yeah, it really is a picture of stability right now.
There are some more cracks forming, especially on the jobless
claim front. We've seen a big spike in continuing claims.
That's people who are continuing to cull left unemployment insurance.
It jumped to its highest level since late twenty twenty
one at one point nine million. But broadly speaking, and
(11:08):
we're going to get update this Friday, Bob, the unemployment
rates at four point two percent and employers added one
hundred and seventy seven thousand jobs in April.
Speaker 3 (11:16):
We'll see what the main number is.
Speaker 2 (11:17):
Economists are a little less optimistic, uh, with maybe employers
adding around one hundred and thirty thousand jobs, but there's
a lot of uncertainty around that. And lastly, on the
inflation front, we did get the Federal Reserves Preferred inflation
measure last week core PCE, and it increased zero point
two percent or i'm sorry, point one percent, and on
(11:41):
a year of a year basis, that's two and a
half percent, so and that's a slight decrease from two
point seven percent. Now, the thing is that the Federal
reserve targets of two percent core PCE inflation rates, so
we're still higher than where the Fed wants it to be.
So for everybody wanting rate cuts, the Fed is not
going to be in any hurry to cut rates unless
(12:04):
you see the economy really slow down, because if they
cut rates that could easily force inflation higher and making
the FEDS drop even worse. So as long as the
job market remained stable, it seems unlikely the Fed's going
to do too much on brake cuts.
Speaker 1 (12:20):
All right, sounds good, Andy, Good stuff is always from
all Worst Chief investment Officer Andy Stout. Here's the all
Worth advice. Don't just let headlines drive your portfolio decisions.
Focus on fundamentals and where the real economic momentum is.
Coming up next, details on what could be a major
tax break for more Americans than ever before, maybe even you.
(12:43):
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC, the talk station. You're listening to
Simply Money presented by all Worth financialcial Lumpop spon Seller
along with Brian James. Hey, if you can't listen to
(13:04):
Simply Money every night, subscribe and get our daily podcasts.
And if you think your friends or family could use
some financial advice, tell them about us as well. Just
search Simply Money on the iHeart app or wherever you
find your podcasts. Straight ahead at six forty three, we're
going to play a little financial planning fact or fiction
and you can score along with us and see how
(13:26):
you do. If you're among the many Americans leveraging health
savings accounts for their triple tax advantages, we want to
remind you today that twenty twenty five brings some noteworthy
updates that could enhance your overall financial strategy.
Speaker 4 (13:42):
Yeah, so there's some big things coming here out of
this this big, beautiful act. You know, regardless of what
your opinion on is that there's a lot of detail
in here, and it's easy to get meyer down in
the headline generating stuff and the political things and all
that kind of stuff. But there are every now and
then we get an a coming out of Congress that
(14:02):
provides some pretty significant tax benefits. And that's where we
are right now. So if you're one of the people
out there using health savings accounts, remember this is an
account where you can save your own dollars, can be
triple tax free, deductible on the way in. Any investment
growth you see on the inside of it is also
not taxable, and when you pull the money out, provided
(14:23):
that it's for healthcare expenses, also again tax free. Once
you reach a sixty five, it behaves like a four
oh one K, meaning that you can take money out
for any reason whatsoever, and it's simply taxable as income
unless it's used for healthcare expenses. That's what a health
savings account is right now. So as right what's going
on right now is the limits are going to be
(14:44):
raised to forty three hundred for an individual only if
you have a family, it's eighty five fifty up from
eighty three hundred last year. And catch up contributions for
ages fifty five and over remains a thousand bucks. That
hasn't changed.
Speaker 1 (14:57):
So what are we trying? Those are that's correct law today,
irrespective of any new tax bill that gets passed by Congress.
That's the law the land today. Those contribution limits have
been raised for twenty twenty five. I want to make
sure we make that clear current actual law versus what
could possibly happen based on some legislation going through Congress
(15:20):
right now.
Speaker 4 (15:21):
So let's talk about the changes coming out. So those
legislation's only made it through the House, got to go
through the Senate too, and again there's a lot of
stuff attached to this, so we'll see what comes out
the other end. But Medicare Part A recipients would be
allowed to contribute to health savings accounts, Bob, per your point,
this is not possible as we're sitting here right now.
If you're on Medicare, that's not considered a high deductible
(15:41):
insurance plan. Therefore you cannot contribute to an HSA, and
you also have to have stopped contributing to it for
the prior six months of being on Medicare, because Medicare
looks back six months.
Speaker 1 (15:50):
That's current law.
Speaker 4 (15:52):
If this goes through, then h then Medicare Part A
recipients will be able to contribute to hssas as well.
In addition, integration with some of the Affordable Care Act plans,
specifically Bronze and Catastrophic, more individuals, including early retirees and
younger workers, can benefit from hsas as well. Also going
to include new expenses. Gym memberships possibly could be paid
(16:13):
for up to five hundred bucks for an individual, thousand
dollars for families annually. And this is a big one too,
as both spouses ages fifty five and older. That's the
catch up age you have to have reached before you
can do that extra thousand bucks. But you will both
be able to make those contributions to a single HSA
and kind of simplify things for yourself.
Speaker 1 (16:34):
Yeah, this all sounds like pretty good stuff. And the
good thing is it would allow more and more people
to take advantage of one of the most valuable planning
strategies out there, which is often overlooked, and that's this
health savings account. And if you listen to this show
at all, you hear us talk about this all the time.
But again, the stuff we just went through, that's the
(16:54):
House version of the current bill that's making its way
through Congress. The Senate has not passed the bill yet,
and I can only guess how many iterations we're going
to see in this bill between now and the time
that it might actually get signed. Here a little bit,
you know, later on this summer, Brian, let's stick with
the overall irrespectable any tax law changes that come down
(17:15):
the pike later on this year, walk us through again
why everyone should be considering using these if you have
the opportunity to do so.
Speaker 4 (17:24):
Yeah, so I think these are again, it's triple tax free,
right if it's handled the right way. We talked about
a deductible on the way in no taxes during you're
not getting a ten ninety nine every year because the
things spit out a dividend and you pull it out
tax free. If it's used for healthcare. Worst case scenario,
it's taxable. Is income just like your traditional four oh
one ks and iras. Once you reach age sixty five,
(17:45):
that's the laws. It is now two huge, huge, huge
things that you need to take into account. Don't just
open up an HSA because your HR department told you
it's a good idea. And here's this no name bank
you've never heard of that is most likely simply going
to behave like a bank account. There will be no
investment growth whatsoever. You may have to keep a portion
in that particular account. Sometimes they require that a few
(18:06):
thousand bucks or something in that basic account, but you
can move the dollars once they're there anywhere, meaning you
can stick it. You can find another outlet, such as
Fidelity or some of the other major financial institutions. They
offer mutual funds just like any other investment program. That
is a very very important step. There's no tax free
growth if you're gonna let it behave like a bank account,
so don't miss that. But you might have take some
(18:26):
proactive control over it. Another huge, huge Huger point, Bob,
is to remember that you don't have to pay for
your expenses that you've incurred right now. This is something
that people, I don't think quite understand. You can fund
that if provided you've got the cash flow to support it,
pay your medical expenses out of cash, just pay out
a pocket, keep those receipts, and then you can let
(18:49):
that money grow for years and years. You can go
for decades, and you can proactively I'm sorry, retroactively payoff
healthcare expenses in the future. Meaning I've got this receipt
from fifteen years ago, I'm going to take a giganticbution
right now and I'm just going to take that cash
and do anything.
Speaker 1 (19:04):
I don't owe that money anymore.
Speaker 4 (19:05):
It's a little bit tough for people to get their
heads around. I don't owe the money anymore. I paid
off the medical facility years ago. But now I get
to take my deduction here fifteen years in the future
because I save that receipt. The benefit I get there
is that tax free growth that I've had over that
long time period. So get your tax benefit now, savior
receipts pulled out to tax free later.
Speaker 1 (19:24):
Yeah, it really is a tremendous tax planning opportunity that
we find so few people are even considering, to say
nothing of taking advantage of. Here's the all Worth advice.
Maximizing HSA contributions can lead to significant tax advantages and
greater financial flexibility. All right, Coming up next, Chief Investment
(19:45):
Officer Andy Stout is back with investment solutions for those
focused on generating income streams from their investment portfolio. You're
listening to Simply Money, presented by all Worth Financial on
fifty five KRC the Talk station. You're listening to Simple
(20:06):
Money by all Worth Financial. I'm Bob John Teller along
with Brian Jean, and we're back with all Worth Chief
Investment Officer Andy Stout. Andy. Tonight, we're going to talk
about an important topic for most investors out there. A
lot of people are thinking about, Hey, I got this
pile of money, I have these investment accounts. How do
I craft an overall strategy focused on income generation? What
(20:31):
what do you tell investors, savers, retirees about that topic?
Speaker 2 (20:37):
Well, I would start by saying, tell me a lot more,
because there are so many ways that you can get
income and it really depends on you, know what your
objectives are, what your besides.
Speaker 1 (20:49):
Income, Well, let me let me let me help you
out a little bit. I mean, obviously, we've got we've
got clients that are, you know, almost one hundred percent
bond They just wanted a safe income generator portfolio from
a mixture of bonds and cash. We have other folks,
as you well know, that are more balanced investors, you know,
more of that fifty to fifty sixty forty kind of investors.
(21:10):
And then we've got, you know, clients that want to
heavily skew toward growth in their portfolio seventy eighty ninety
percent in stocks, but still want some income you know,
coming from their portfolio for cash flow. With that as
a backdrop, talk about some things that we do in
the way of portfolio construction for all three of those
(21:31):
kind of folks.
Speaker 2 (21:33):
But if you're looking for the individual bond, so that
first type of persona, if you will that you described, Yeah,
I would probably start to think about bond ladders, which
are a way to spread out your individual bond.
Speaker 3 (21:46):
So think of like an example of.
Speaker 2 (21:49):
Being a one to five year bond a ladder where
you take your investment, say it's a million dollars. Just
to keep it simple, basically, invest two hundred thousand dollars
and bonds that mature in one year from whenever you
do it, two year, three year, four.
Speaker 3 (22:04):
Year, and five years. And then as you.
Speaker 2 (22:07):
Get closer to those bonds mature and you take those
those one year bonds that are now matured and buy
a new five year group of bonds. And so that
allows you to stagger your investments over a period of
time and helping to smooth out the overall interst rate
risk that's out there. And it's not just quote unquote bonds.
(22:28):
I mean, there's different types of bonds that people should consider. Ok,
different high tax bracket. You might want to be looking
at municipal bonds because that'll give you a federal tax
free income and possibly state tax free income depending on
the bond that you actually get.
Speaker 3 (22:42):
Now, if you're not in a.
Speaker 2 (22:43):
High tax bracket, or maybe you already have a lot
of exposure to me, you needs to just want to diversify.
You can also look at corporates and treasury bonds. So
there's a lot of options for you from that perspective.
So you know, when you look at those bonds, that's
one thing that I think makes a lot of sense
if you have individual bonds. Now, another type of you know,
(23:08):
PERSONA would be the person who's investing in individual stocks.
So if you're investing in individual stocks, you know, you
want to make sure you stay diversified from that perspective,
and you can easily focus on individual stocks to have
a high, you know, dividend paying mentality if you will,
and you used to look at like what their yield
(23:29):
has been or what they're expected yield is going to be.
And the key is really just to make sure you
stay diversified. You want to not have it all in
one sector. So it's really critical that you pay attention
and not just buy high dividend yielding stocks. And you
also probably want to actually look at the names because
some of those names could be paying a high dividend
for all the wrong reasons. So you might see, oh,
(23:51):
this has a ten percent dividend, this is great, Well,
maybe it only has a ten percent dividends because the
stock has been crashing and maybe there's no prospects for
any sort of real improvement and that dividend.
Speaker 3 (24:02):
Could be at risk.
Speaker 2 (24:03):
So you really need to pay attention to stable cash
flows and you know, we definitely want to focus on
stable companies. And the other person ona that you know
we talked about was a diversified investor. Now you can
certainly combine individual stocks and individual bonds. You can also
go to fundrout you can use like exchange rate of
funds or mutual funds to achieve pretty much the same thing.
(24:24):
So you can get income in that four five percent
range depending on how much risk you're willing to take.
By having a diversified portfolio of stocks and bonds, so
you can have your typical you know, sixty forty mix
as an example, and get that roughly you know, four
to five percent yield.
Speaker 3 (24:41):
And the key here is to make sure you're diversified.
Speaker 2 (24:45):
Don't just put it all into one ETF or one
mutual fund. You want to spread it over different types
of dividend payers and different types of bond investments that
pay out income. So there's lots of opportunities there.
Speaker 4 (25:00):
So Andy, one thing i feel like I've seen talking
to my clients, you know, over the past fifteen years,
it seems like, obviously we've had really really low interest
rates up until about three years ago. It seemed like
during that period when interest rates are so low, people
were much more attracted to the idea of, you know what,
I'll just invest in the diversified portfolio of you know, stocks, funds, bonds, whatever,
(25:20):
and just take distributions out of it, especially when it's
like an IRA where there's not much control over the
taxation anyhow, you're going to take your distributions to pay
your bills, and you're going to pay your taxes, and
you're going to like it, by God. But in any case,
have you seen a shift over the last three years
more interest in individual bonds? It feels like we've maybe
gone back to where it was in late nineties early
two thousands. Are you seeing the same thing?
Speaker 2 (25:41):
Yeah, I'm seeing interest there for sure, for all the
reasons you just mentioned. But there's a few other things
that have been becoming more and more attractive for investors.
One thing that I'm saying is covered calls. So if
you have a big position in proper and Gamble as
an example, you're seeing some investors write call options on
(26:03):
them to generate their own income, and that's just another way.
Now you run the risk of that stop getting called away.
But there's rules you.
Speaker 3 (26:11):
Can put a place to minimize.
Speaker 2 (26:13):
Is that Another thing that I'm seeing out there is
some structured notes to generate yield. So it's not just
the individual bonds that have seen increased attractiveness. And I
don't call these exotic investments. I mean covered calls, structure
noteses are relatively mundane in today's day and the world.
I mean twenty years ago maybe you might have thought that,
(26:35):
but now not so much. But yeah, you were seeing
a shift in general to a broader offering overall.
Speaker 1 (26:43):
Good stuff there, Andy, and I think the point we
want to drive home to all investors out there, there's
a lot of options out there, a lot of things
to consider and a lot of variables to factor in
when you construct a well designed income plan from your portfolio.
Thanks always to our Chief investment Officer, Andy Stout for
joining us today. You're listening to Simply Money presented by
(27:06):
all Worth Financial on fifty five KRC the talk station.
You're listening to Simply Money presented by all Worth Financial
on Bob Sponsorer along with Brian James. Do you have
a financial question for us to answer? There's a red
(27:28):
button you can click while you're listening to our show
right there on the iHeart app. Simply record your question
and it'll come straight to us. All right. Time to
play financial planning factor fiction, Brian, I'm gonna let you
start off factor fiction. Direct investing can offer better tax
efficiency than traditional ETFs. Fact. This is a fact, Bob.
Speaker 4 (27:52):
So direct indexing basically means that instead of owning a
mutual fund that replicates a stock index or a bonda
or whatever.
Speaker 3 (28:01):
You know.
Speaker 4 (28:01):
Most typically that's the S and P five hundred, which
is nothing more than the five hundred largest American companies,
you can own a fund that does that kind of thing. However,
nowadays you can also own all five hundred stocks individually.
That might seem overwhelming, and maybe I don't want a
thirty page statement and all that kind of thing. But
if I own all five hundred stocks, that means any
of those five hundred stocks is doing anything good, bad,
(28:22):
and different.
Speaker 1 (28:22):
Some are up, summer down.
Speaker 4 (28:23):
But if I've got the ability, I can do some
tax loss harvesting in a taxable account. This doesn't help
in an IRA roth IRA. It has to be a
you know, an account that's otherwise exposed to taxes on
an annual basis. But if I own those five hundred
individual stocks. I can sell some at a loss during
the year. Stuff is going to go up and down.
We know how that works. If I incur that loss,
I can stack that up and deduct up to three
(28:46):
thousand dollars off of my short term you know, against
any short term gains and off of my income. I
can also use those losses to offset any long term
capital gains that I may have incurred. And that it
could be because I sold some stock somewhere else and
I ate a capital gain. Maybe I sold a business
and there's a capital gain you know from that. But
direct indexing is a great way for the right investors
(29:08):
to have the ability to do some tax loss harvesting.
Speaker 1 (29:10):
So that one which is in fact, it just puts
more arrows in your quiver, right, Brian, A lot more flexibility.
Speaker 4 (29:16):
Another weapon. All right, Bob, you're on the hot seat
here it comes fact or fiction, Bob. Social Security benefits are.
Speaker 1 (29:22):
Always tax three. That is fiction. And I think most
people understand this. But you know, your income doesn't have
to get much over forty thousand dollars for a mery
filey joint couple before eighty five percent of your Social
Security benefit is taxed. So now there are situations if
you're a lower income person, or if we can make
(29:44):
you into a lower income person by using accumulated savings
or taking advantage of some of the low capital gains
tax rates. There are ways we can bring that taxable
income number way down, but in most cases most people
need to plan for paying taxes on their Social Security benefit. Yeah,
(30:06):
you're right.
Speaker 4 (30:06):
The being low income isn't necessarily a bad thing. Gives
you some control over your taxes, all right.
Speaker 1 (30:10):
My term, Bob hit me structured notes Brian can be
designed with buffers against market losses while still offering equity
linked returns. Factor fiction. This is facts.
Speaker 4 (30:23):
That's what a structured note does. That's the whole point.
Structured note is basically something that is a calculation based
off of what the underlying index, again most commonly the
S and P five hundred against what the underlying index
has done, meaning that we can put a floor under
it and also a ceiling. Right, So there's pros and
cons anything we do. But the purpose of a structured
note for somebody who says, yeah, I believe in the
stock market, I believe it's going to be the best
(30:45):
source of growth going forward in the best you know
for that chunk of my portfolio. But on the other hand,
I also don't like the headlines, and I really don't
like the whiplash you can get, you know, when when
somebody says something, you know, the wrong words are uttered
into a microphone from all of our political or something
like that. So I would really rather not have to
go through that. So a structured note will put a
(31:05):
floor in so that you can't really lose beyond a
certain amount. But that also means you're sacrificing some of
the upside. So you'll decide that if you buy a
structured note, that's one of the decisions you make is
how much downside do you want to be protected from?
And that in turn requires you to sacrifice some of
the upside. So, like another arrow in the quiver. As
we already discussed before, these aren't the end all BLL.
(31:27):
No investment is the end all bell. But structured notes
can be a great way to offset some of the
risk of a portfolio. All right, come in your way again, Bob,
fact or fiction. You don't need life insurance once you're retired,
What say.
Speaker 1 (31:38):
You, Well, this is one of those situations where I'm
gonna say it depends. I think the.
Speaker 4 (31:45):
Opinion that's a that's a chicken financial planner answer.
Speaker 1 (31:49):
It might be it might be chicken, but I'm doing
my job here, Brian. And the key point we want
to make is it depends on your financial situation. It
doesn't matter whether you're working or retired. What you want
to do is you want to look at your overall
plan and obviously look at it through the lens of
if I die today, do my heirs have enough money
(32:11):
to accomplish all the goals that we've set out, you know,
with your spouse to accomplish. We ideally we like to
have people in a situation that by the time they
are ready to retire, they're in a position to self
insure they don't quote unquote need life insurance to take
care of things. Sometimes we find that people are going
to retire and they still need a little bit of
(32:33):
life insurance maybe for five, ten, fifteen years. Some people
might want to keep their life insurance for an estate
planning tool, or to leave a legacy of dollars to
their heirs. So it's a it's an it's a it
depends answer based on every single family's individual financial planning needs.
Speaker 4 (32:54):
Yeah, it depends. In such a common answer, I was
being mean to Bob just because I can. But that's
because there is no end all, be all black and white.
Everybody should do this answer to any of these topics.
Everything is affected by other outside influences that may only
exist in your situation.
Speaker 1 (33:09):
It depends, all right. Let's go back to a very
an easier question to answer definitively Brian factor fiction. You
can carry forward unused capital losses indefinitely. On the other hand,
there are some that are black and white. This one
is fact. So if you have a loss.
Speaker 4 (33:25):
Meaning you know, perhaps you bought a stock sometime during
the year and it went the wrong way on you
and you sold it. Therefore you have incurred a loss, Yes,
you can carry forward those capital losses indefinitely. What that
means is that you are able to deduct up to
three thousand dollars off of your income of short term losses.
That short term meaning you bought it within a year,
(33:45):
or bought it and sold it within a year and
took a loss on it. That's short term, and you
can offset an unlimited amount of gains with your losses.
So if you have a million dollar gain and you
have a million dollar loss. Guess what, You're not paying
any taxes. The carry forward part of this means if
you had more losses than gains during the year after
you've taken the three thousand dollars deduction in addition to
(34:07):
the long term offset, then you can carry forward those
into the future. This is why you're asked when you
do your taxes, do you have any loss carry forwards?
And most go Most people go, I don't know to
know what that is, So I'm gonna guess I don't.
There is a form that you that you are filled out,
that you filled out as part of your ten forty
that will track that for you, So make sure that
you're on top of that so you don't lose that benefit.
Speaker 1 (34:27):
Coming up next, I'm gonna give you my two cents
on proactive tax planning. You're listening to Simply Money presented
by all Worth Financial on fifty five KRC the talk station.
You're listening to Simply Money presented by all Worth Financial
Sponsorller along with Bryant Gaming. All Right, Brian, I feel
(34:50):
so strongly about this topic. We're gonna spend a few
minutes on it. I'm anxious to hear your perspective as well.
And what we're talking about tonight is proactive tax planning,
actually taking the time in the effort sitting down with
a fiduciary advisor to actually dovetail your investment strategy with
(35:10):
your tax planning strategy. So few people, Brian, we find
are doing this, and it's one of the biggest value
ads I think that we add for our clients, and
it's something everyone should be taking advantage of.
Speaker 4 (35:23):
Yeah, I think that's a great point, and I think
there's an awful I'm glad to hear you're going to
be talking about this because there's an awful lot of
people who focus only on what's my ten to forty
gonna look like this year? How do I reduce my
taxes this year? That's not the only thing to focus
on is about.
Speaker 1 (35:36):
Now, And I'm going to break this into two categories.
One is for an after tax account. You know, so
now we're not we're talking about your brokerage account, not
your IRA or your WROTH IRA, your taxable account. You
really do need to take a look at if you're
not doing so already, these tax loss harvesting opportunities that
can and should go on in the background through a
(35:56):
well managed investment portfolio, and that allows you to harvest
these short term losses to be used in the future
to offset future gains. It's a wonderful planning opportunity and
one that we're not seeing enough people take advantage of
just in the overall management of their portfolio. And then
the second thing that I want to talk about is
(36:18):
just overall strategy. This is where you get into Wroth
contribution or Wroth conversion strategies, social security claiming strategies, putting
everything together in an overall income producing strategy with an
eye on tax management to keep your marginal tax rate
(36:38):
in the lowest possible bracket. It can be Brian, it
can pay huge dividends down the road. And this is
where you got to take advantage again, usually with an
advisor of some of the good software and planning tools
that are out there to actually walk people through how
to make this work. And then we can run those
projections on. Hey, if we do strategy A, B or
(37:02):
C or a combination of all three, here's how it
impacts to your point, Brian, your tax situation not only
this year, but five, ten, fifteen, twenty years down the road. Yeah.
Speaker 4 (37:13):
I took a call last week, Bob that right on
this topic. One of the radio listeners called in wanting
to know how he can reduce taxes on his required
minimum distribution. So this gentleman's in his mid seventies, he's
required to take money out of his IRA, and I
have a choice about it, and he's wanting to reduce taxes. Unfortunately,
there's not a hike of a lot you can do
at that point unless you're own a business. You've got
(37:34):
some you know, different entities out there generating losses or whatever.
It's not like the old days where you can kind
of just you know, look for hidden deductions and so forth.
The right answer to this would have been, hey, ten
years ago, let's start reducing your IRA by converting to
a ROTH. That way, in the future you will have
fewer rmds. That's tax planning.
Speaker 1 (37:53):
Yeah, excellent point, Brian, And again we want to get
out in front of some of these tax planning opportunities
and what we find most often with clients, Brian, you know,
you feel free to weigh in here, but there's usually
this low income period of time, the intervening years between
when someone retires and when they have to start taking
(38:15):
those required minimum distributions, that's where a lot of this
magic can happen. Where you can put their entire plan,
you know. I like to use the automotive analogy. Put
the entire plan up on the rack and look for
that ten, twelve to fifteen year window where we can
keep people in a very low tax bracket and accomplish
some big things, you know, down the road.
Speaker 4 (38:36):
Yeah. Absolutely, that's a great donut hole to to be
able to take advantage of some tax obligations.
Speaker 1 (38:41):
Thank you for listening. You've been listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station
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